Production was already costly, fuel price hike a fresh blow

Local production costs in 90% of apparel industry sub-sectors went up even before the latest spell of fuel price hike.

According to the Bangladesh Bureau of Statistics (BBS), production costs in 9 out of 10 sub-sectors of the garment sector – including spinning, cotton, silk, synthetic, jute, hand loom, and knitwear – increased by 1%-58% in the fiscal 2020-21 as compared to the previous year.

The Domestically Produced Industrial Goods index of the BBS shows production cost of spinning and cotton textile fibre has increased by 56.22% while textile production has become 13.62% costlier over the past one year.

Mohammad Ali Khokon, president of the Bangladesh Textile Mills Association (BTMA), told The Business Standard that production cost rise in all sectors was mainly due to a surge in prices of all raw materials on the international market and a rise in shipping costs.

In reality, the cost of production has become much higher than what BBS data show, Khokon noted, adding that the price of cotton has more than doubled in the past one year while fibre prices have risen by more than 50%. "Prices of almost every raw material have surged by more than 25%. As a result, the cost of production has increased."

According to the BBS report, production costs have risen in almost all of the domestic manufacturing sectors – such as the garment industry – except for only 34 out of 209 sectors.

The BBS has created the index considering 2005 as the base year and 100 as the production cost.

According to BBS data, the tannery and finished leather production saw the highest increase last year as its current index stands at 248.95. The cost of production in this sector increased by 71.23% last year. Production costs of other products related to leather goods also increased by about 12%.

Tanners and leather goods manufacturers say a rise in global commodity prices, increasing freight charges, industries' failure to import raw materials on time, and keeping workers idle have pushed production costs up.

Mohiuddin Ahmed Mahin, chairman of the Bangladesh Finished Leather, Leather Goods and Footwear Exporters Association, said prices of chemicals almost doubled over the past one year. Transportation costs have also risen.

However, keeping workers and factories idle amid the pandemic was the major reason behind the surge in production costs, he observed.

"Factories remained shuttered for many days due to no exports and no sales in the domestic market. But owners had to bear factory operating expenses. We also had to pay the workers. As factories had to expend money even though there was no income, the cost of production increased eventually," said Mohiuddin.

Vegetable oil saw the second-highest increase in production cost last year.

According to the BBS, the cost of local producers increased by 68% in FY21. Consumers are also suffering due to the increase in the cost of production of this everyday essential.

The rise in edible oil prices in the domestic market is a result of the volatility on the international market, according to traders.

Biswajit Saha, executive director of City Group – the country's largest consumer goods company, said, "Prices of soya beans and all types of oilseeds have risen in the world market. Transportation and labour costs have also increased. This is why the cost of production has increased."

Besides oil, all intermediate goods witnessed their production costs surge by 5% to 25% while food production became 12.33% costlier and the production cost of dairy products increased by 1.13% year-on-year in FY21.

Nonetheless, the cost of sugar production remained unchanged last year although the price of sugar increased during this time.

Among heavy industries, cement saw a 5% surge in production cost last year. On the other hand, production cost in iron and steel mills surged by 11.6%, that of basic metal by 15.12%, motor vehicle manufacturing and assembling by 11.12%, transport materials 4%-10%, and furniture by 4%.

While most of the manufacturing sectors witnessed a hike in production cost last year, some were able to avoid the fate, according to the BBS. The sectors include electric appliances, cigarettes, plastics, petroleum products, fertilisers, melamine, electric lamps, fractal boards and several other unconventional products.

Businesses, however, termed the BBS report incomplete and claimed that production costs have increased in all sectors.

Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry, said, "Even though there was no sales during the coronavirus pandemic, factory owners had to pay workers' wages and bear factory operating expenses. Raw material prices have risen in the global market. Transportation costs inside the country have also gone up. As a result, production costs have increased in all sectors."

Impact on market

According to BBS data, market prices of all products have surpassed the surge in their production costs.

Over the past one year, prices of rod, cement, garments, and all everyday essentials including oil, sugar, rice and pulses have gone up sharply. Prices of some products have doubled during this period.

The price per tonne of rod ranged between Tk50,000 and Tk52,000 in the middle of this year,which has jumped to Tk78,000 now. The price of this important construction material has increased by about 40% in the past one year. The prices of over 100 other building materials including cement, bricks, sand and stone have risen at almost the same rate.

The price of soya bean oil was around Tk100 a litre last year, which has surged to Tk160 now.

According to TCB's market analysis, prices of loose and bottled soya bean oil have increased by about 48% in one year while that of loose and packaged flour have increased by 17.24% and 20%, respectively.

Sugar, pulses, bread, biscuits and almost all other daily necessities have become costlier by 20%-25% during the period.

All fashion products including clothing and accessories have also become pricier.

Ghulam Rahman, president of the Consumers Association of Bangladesh (CAB), said the rate of price hike of various products at the consumer level is much higher when compared to the price hike of their raw materials and increase in production costs.

"This would not have happened, had the government taken initiatives to keep the supply stable. The government also can provide subsidies when prices go up on the international market."

Fuel price hike a cause for fresh concerns

The recent rise in fuel prices will further increase the cost of production, fear businesses. According to them, this will increase the cost of new products by at least 20%.

Kamruzzaman Kamal, director (marketing) of Pran-RFL – one of the leading home appliance and food products manufacturers in the country, said, "The fuel price hike would first cause production costs to increase at factories. Secondly, transportation costs will increase by at least 30%. Then prices of all kinds of raw materials will go up. Finally, the wages of sales representatives will increase."

For all these reasons, industries will face problems, he said, adding that production costs will suddenly increase by 20%-25%, pushing up product prices further.

City Group Executive Director Biswajit Saha said consumer marketers also will face similar problems.

Prices of raw materials on the international market have been high for the past several months, he said, adding the recent fuel price hike will increase the costs of production and marketing of everything. "Manufacturers have to raise product prices to survive," he concluded.